Reconstructing cost basis on gifted bonds while I was an infant

January 12, 2008 1:44 PM

I was given (gifts) federal savings bonds throughout my early childhood. When I was starting college, I cashed the bonds. Then, we had a devastating home fire disaster. I lost ALL of the paperwork for these bonds. The IRS came back regarding my taxes and wants to tax me on ALL of the redemtion. How can I construct the proper cost basis with NO information? Continue on for more details ...

So, I was given (gifts) federal savings bonds throughout my early childhood. When I was starting college, I cashed the bonds. Then, we had a devastating home fire disaster. In it, I lost a lot of important things.. including the "shares redeemed" tax forms from the sale of my bonds, as well as any remaining paperwork we may have had regarding the gifting process.

So I filed my 2006 taxes, completely forgetting about these cashed bonds and my tax liabilities for them. Now, the IRS came back with the 1099-B from "Focus Fund Investor Class", "Boston Financial Data Services" located at 2 Heritage Dr, N Quincy, MA 02171.... which reports I received $5,442 in redeemed securities, which I believe to be 100% true.

The papers I received from teh IRS indicate that my cost basis is assumed zero, because I did not file a schedule D. They are asking for $871 in backed taxes.

I would like to correct this change, and provide the proper cost basis on these securities to reduce my taxes, BUT I HAVE NO PAPERWORK AT ALL regarding the purchase, transfer, nor redemption of the bonds. I don't know much if ANYTHING about the gifted bonds. Not where they came from, who gave them to me, etc. I just know my parents had them (in my name) while I was growing up.

I have about 3 weeks to mail my response before I am penalized further. How can I go about gaining information, paperwork, or anything else about these? Am I fresh out of luck? Should I just pay these taxes at a loss, and be done with it?

Thank you very much for any insight you can provide me. This is a huge punch to my stomach after what we've been through.

Thanks,
Ryan

posted by Ryaske to Law & Government (7 answers total)

Unless they are auditing you, the IRS often takes your word for things. But in this case you gave them no information at all about the money reported to them, so they are assuming the worst. You can certainly file an amended return including the info from the 1099-B and giving the correct basis. They may not question this. If they do, you can tell them about the fire (which presumably you can document). They might believe you. If they don't, you're no worse off than you are now.
posted by ubiquity at 2:48 PM on January 12, 2008

BTW, you might also try asking Boston Financial Data Services if they have any additional information on the sale. Since it was a recent transaction, they might.
posted by ubiquity at 2:49 PM on January 12, 2008

Federal bonds
When you need the original: You want to cash it in.

How to replace it: For federal savings bonds, go to the U.S. Treasury's website (treasurydirect.gov) and fill out Form 1048. You can find missing savings bonds all the way back to 1935.

For registered federal Treasury bonds, you have to write a letter to the government (the address is on the Treasury website) and request a search.

Cost: Free for savings bonds; for Treasury bonds, fee varies.
(source: money.cnn.com

posted by misterbrandt at 2:53 PM on January 12, 2008

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posted by misterbrandt at 3:09 PM on January 12, 2008 [2 favorites]

Response by poster: thanks everyone. There are so many lines on the 1099b form, I'm just having trouble coming up with the [estimated] answers. I'm trying to remember how many/denominations of all the bonds I cashed but the memory isnt very clear.

The only problem with the IRS not believing my estimations .. is that they will tack on additional interest to the "assumed" correct tax amount. But i think risk is worth it to pay up to 70% less... right?

Thank you misterbrandt. I also found that information .. I think that service only applies BEFORE the bonds have been cashed in, if you were replacing them if they are lost or destroyed. Since they are already cashed, I Dont think im entitled to a replacement. But I will try it to get information, anyway.

I will send a letter to Boston Financial, and form 1048 to treasury direct, and hopefully between the two I can find out the dominations and purchase dates and hopefully only pay tax on the interest, as I should be.


If anyone else has any additional advice, I'm still watching!. I have about 3 weeks to respond to the IRS. So keep it coming!

Thanks!
posted by Ryaske at 9:19 PM on January 12, 2008

i'm not sure that i fully understand the issue. you cashed in some savings bonds and got the cash for them. then your house fire destroyed the form the bank gave you when you cashed them in. that i get. but did you get the form from your bank which listed all the interest you earned on savings accounts and cds (if you had them) and which also would have listed the amount of interest earned on the bonds at the time you cashed them in? did you use that form when you filed your taxes?

to me, the amount they want you to pay on the amount that you cashed out sounds reasonable (and i say that from having cashed in a lot of savings bonds in the past few years to pay down debt).

i believe that the irs taxes you on total amount of the cash out, not just the interest, since the purchasers of the bonds don't pay any tax when they buy them.
posted by misanthropicsarah at 9:57 PM on January 12, 2008

Response by poster: I was under the impression that the amount the bonds were purchased for .. would be the "Cost basis" I can report for them. Then I would be taxed only on the amount earned since their purchase.

If this is not the case, what's the point of having a cost basis? Or, can I actually just not report any cash basis for these at akk?

For the amount I might save, I don't think its worth it for me to spend the extra $$ utilizing a tax professional to find out for sure.

But, are my efforts really for naught? I can pay the tax request, but of course I'd like to save some of that if I can.
posted by Ryaske at 10:25 PM on January 12, 2008